Intersections Inc. Reports Third Quarter 2017 Results

  • National Launch of Identity Guard® with Watson™ as Part of
    Employee Benefit Programs
  • Activated Expanded Service Tiers of Identity Guard® with
    Watson™
  • Divestiture of Non-Core Businesses completed in Third Quarter

CHANTILLY, Va.–(BUSINESS WIRE)–Intersections Inc. (NASDAQ: INTX) today announced financial results for
the quarter ended September 30, 2017.

“This has been an eventful quarter for the Company, as we completed the
divestiture of all non-core businesses, and developed additional service
tiers and expanded sales channels for Identity Guard® with
Watson™,” stated Johan Roets, Chief Executive Officer. “In addition, the
cybersecurity incident announced by Equifax Inc. on September 7, 2017,
potentially impacting approximately 145 million U.S. consumers, and its
subsequent response thereto, have impacted our industry profoundly.
Equifax has offered credit locks for life and free credit monitoring for
at least twelve months to nearly all U.S. consumers. The fact that such
critical data containing social security numbers, driver’s license
numbers, full names and dates of birth have been exposed – data that
will never change during one’s lifetime – means that nearly every
adult U.S. citizen may now have to deal with the risk of identity misuse
and financial crime for an unknown, extended period of time. As a
result, we believe that the first significant effects of such criminal
activities may not occur until after the Equifax free credit monitoring
expires in a year’s time. We expect the already complex relationships
between the three major U.S. credit reporting agencies and the consumers
whose data they collect will become even more problematic as consumers
object to their lack of control over how these organizations store, use
and share their most personal and sensitive data. We believe that as the
largest independent provider of identity theft protection and privacy
services to consumers in the U.S., Intersections stands to gain from
consumers who want someone other than the credit agencies to protect
them.

“As we look ahead to the fourth quarter and 2018, we are optimistic
about the Company’s future, with a renewed focus, best-in-class
products, and strong consumer need for comprehensive identity protection
solutions,” continued Mr. Roets. “As the Company focuses on growing its
business, we continue to successfully build our distribution pipeline
through marketing partners and the employee benefit broker channel. We
have seen some substantial wins in both channels. Additionally, deals
won by Equifax in the employee benefit arena have been re-tendered in
the aftermath of their data breach.”

Key Accomplishments and Developments:

  • The Identity Guard® with Watson™ technology platform and
    product suite was launched on June 26, 2017. During the third quarter,
    development activities expanded the platform to support additional
    service tiers that will be available by the first quarter of 2018,
    including both an entry level Value service and a premium service,
    Premier, to go with our Total service plan. All three tiers of service
    for Identity Guard® with Watson™ also include an option for
    a robust family coverage service. The Company expects the Identity
    Guard® with Watson™ product suite to be its primary
    offering starting in January 2018.
  • A successful business development campaign began in the third quarter
    to work with employers and their employee benefits advisors to make
    Identity Guard® identity theft protection available to
    employees across the U.S. Employers responded favorably to our
    programs and plan to begin covering new employee populations in the
    fourth quarter of 2017.
  • The Company completed the divestiture of its Pet Health Monitoring
    business, known as Voyce, effective July 31, 2017. The Voyce sale,
    along with the sales of the Company’s Bail Bond Industry Solutions
    business in the first quarter of 2017 and its insurance consulting
    business in the second quarter of 2017, completes the Company’s
    previously announced program to divest all non-core businesses and
    focus solely on the personal identity theft protection market for
    consumers.
  • The completed divestiture program allows management to exclusively
    focus on the full market launch of Identity Guard® with
    Watson™, executing new partner opportunities, fine-tuning its
    direct-to-consumer marketing, and continuing its pursuit of cost
    control through streamlining and optimizing processes.
  • Identity Guard® and the Canadian business achieved year
    over year revenue growth of 0.2% and 7.9%, respectively, compared to
    the third quarter of 2016.

Consolidated Third Quarter Results:

Consolidated revenue for the quarter ended September 30, 2017 was $39.2
million, compared to $43.0 million for the quarter ended September 30,
2016. Loss from continuing operations before income taxes for the
quarter ended September 30, 2017 was $(3.4) million, compared to $(2.2)
million for the quarter ended September 30, 2016. Consolidated adjusted
EBITDA (loss) before share related compensation and non-cash impairment
charges (“Adjusted EBITDA”) for the quarter ended September 30, 2017 was
$958 thousand, compared to $1.8 million for the quarter ended September
30, 2016. Basic and diluted loss from continuing operations per share
for the quarter ended September 30, 2017 was $(0.14), compared to
$(0.09) for the quarter ended September 30, 2016.

Consolidated revenue for the nine months ended September 30, 2017 was
$119.6 million, compared to $133.4 million for the nine months ended
September 30, 2016. Loss from continuing operations before income taxes
for the nine months ended September 30, 2017 was $(13.0) million,
compared to $(2.2) million for the nine months ended September 30, 2016.
Consolidated Adjusted EBITDA (loss) for the nine months ended September
30, 2017 was $(777) thousand, compared to $8.4 million for the nine
months ended September 30, 2016. Basic and diluted loss from continuing
operations per share for the nine months ended September 30, 2017 was
$(0.55), compared to $(0.09) for the nine months ended September 30,
2016.

Consolidated Third Quarter Highlights:

  • Identity Guard® subscriber revenue of $12.4 million for the
    quarter ended September 30, 2017, remained consistent with revenue of
    $12.5 million for the quarter ended June 30, 2017 and revenue of $12.4
    million for the quarter ended September 30, 2016. The Identity Guard®
    subscriber base was 338 thousand subscribers as of September 30, 2017,
    compared to 329 thousand subscribers as of June 30, 2017. Subscriber
    growth late in the third quarter is expected to have a positive impact
    on revenue in the fourth quarter of 2017.
  • Revenue from U.S. financial institution clients was $20.8 million for
    the quarter ended September 30, 2017 compared to revenue of $21.4
    million for the quarter ended June 30, 2017. Revenue decreased by 0.9%
    per month during the third quarter, which the Company believes is
    representative of normal attrition given the discontinuation of
    marketing and retention efforts for this population.
  • Loss from continuing operations before income taxes for the quarter
    ended September 30, 2017 was $(3.4) million, compared to $(5.3)
    million for the quarter ended June 30, 2017, and $(2.2) million for
    the quarter ended September 30, 2016. The improvement in the third
    quarter results compared to the second quarter 2017 was primarily due
    to the negative impact in the second quarter of a $1.5 million
    non-cash loss on extinguishment of debt as a result of the term loan
    refinancing closed in April 2017, and an increase of $1.0 million in
    the estimated liability for non-income business taxes.
  • Adjusted EBITDA (loss) for the quarter ended September 30, 2017 was
    $958 thousand, compared to $(735) thousand for the quarter ended June
    30, 2017 and $1.8 million for the quarter ended September 30, 2016.
    The increase compared to the second quarter 2017 was primarily due to
    the negative impact of a $1.0 million increase in the estimated
    liability for non-income business taxes in the second quarter.

Liquidity:

As of September 30, 2017, the Company had a cash balance of $7.0
million, and an outstanding principal balance of $20.0 million under its
new credit agreement, as amended. Cash (used in) operating activities of
continuing operations for the nine months ended September 30, 2017 was
$(1.8) million. Cash provided by operating activities of continuing
operations for the quarter ended September 30, 2017 was $81 thousand.

The Company began expanding its business development capabilities in
2016 to address market channel and distribution opportunities and
continued the expansion of this team in the first nine months of 2017.
As a result, cash used in operating activities for the nine-month period
includes approximately $3.6 million for business development activities,
the significant majority of which is personnel cost. The Company expects
to continue its spending on business development activities at
approximately the same level as the first nine months of 2017 for the
remainder of 2017.

Cash used in operating activities included $6.3 million in the nine
months ended September 30, 2017 for deferred subscription and
solicitation costs related to our direct-to-consumer marketing,
including $1.0 million in the third quarter. The Company implemented
changes beginning in the second quarter to reduce the cash marketing
spending in this channel and expects the use of cash for this purpose to
continue to decline for the remainder of 2017.

The Company continued to develop new product features primarily for the
Identity Guard® with Watson platform during the
nine-month period ending September 30, 2017. As a result, the Company
invested approximately $2.7 million in internally developed capitalized
software for the nine-month period. The Company expects to continue its
investments in product development at approximately the same level as
the first nine months of 2017 for the remainder of 2017.

For additional information, Please see “Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations—Liquidity
and Capital Resources” in our most recent Form 10-Q.

Third Quarter 2017 Business Update Conference Call:

The Company will hold a conference call to provide a third quarter 2017
business update on Monday, November 13, 2017 at 4:30 p.m. Eastern Time.

Interested parties can access the live webcast on the Investor’s page at
Intersections Inc.’s website www.intersections.com.
The live call can be accessed by dialing the toll free numbers below.
Those who wish to participate in the Q&A session must dial in.

 
WHAT: Intersections Inc. Third Quarter 2017 Conference Call
 
WHEN: November 13, 2017
4:30 p.m. Eastern Time
 
HOW: Dial in: 888-771-4384
International: 847-585-4409

For a current list of alternate local and International Freephone
telephone numbers, please
click here
.

 
Participant Pass code: 7033124#
 

To pre-register for the conference, please
click here
.

 

The replay of the webcast will be available November 13, 2017 at 7:00
p.m. (Eastern Time) through November 19, 2017 at 11:59 PM (Eastern
Time). The dial-in for the replay is 888-843-7419 or 630-652-3042 with
the replay access code of 7033124#.

Non-GAAP Financial Measures:

Intersections’ Consolidated Financial Statements, “Other Data” and
reconciliations of these non-GAAP financial measures to the most
directly comparable GAAP financial measures and related notes can be
found in the accompanying tables and footnotes to this release and in
the “GAAP and Non-GAAP Measures” link under the “Investor & Media” page
on our website at www.intersections.com.

Forward-Looking Statements:

Statements in this release relating to future plans, results,
performance, expectations, achievements and the like are considered
“forward-looking statements”
under the Private Securities
Litigation Reform Act of 1995. You can identify forward-looking
statements by the fact that they do not relate strictly to historical or
current facts. These statements may include words such as “anticipate,”
“estimate,” “expect,” “project,” “plan,” “intend,” “believe,” “may,”
“should,” “can have,” “likely” and other words and terms of similar
meaning in connection with any discussion of the timing or nature of
future operating or financial performance or other events. Those
forward-looking statements involve known and unknown risks and
uncertainties and are subject to change based on various factors and
uncertainties that may cause actual results to differ materially from
those expressed or implied by those statements, including the success of
our strategic objectives; our ability to generate revenue from our
partner sales strategy and business development pipeline with our
distribution partners; the impact of shutting down and then divesting
our Pet Health Monitoring segment; the timing and success of new product
launches and other growth initiatives, including our Identity Guard
®
with Watson™ product; the continuing impact of the regulatory
environment on our business; the continued dependence on a small number
of financial institutions for a majority of our revenue and to service
our U.S. financial institution customer base; our ability to execute our
strategy and previously announced transformation plan; our incurring
additional restructuring charges; our incurring additional charges for
non-income business taxes or otherwise, or impairment costs or charges
on goodwill and/or other assets; our ability to control costs; our
expectations about marketing and investment expenditures described under
“Liquidity” above; our failure to protect private data due to a security
breach or other unauthorized access; our ability to maintain sufficient
liquidity and produce sufficient cash flow to fund our business, growth
strategy and debt service obligations; our ability to complete the
proposed amendment to our New Credit Agreement; and our needs for
additional capital to grow our business, including our ability to
maintain compliance with the covenants under our term loan or seek
additional sources of debt and/or equity financing. Factors and
uncertainties that may cause actual results to differ include but are
not limited to the risks disclosed under “Forward-Looking Statements,”
“Item 1. Business—Government Regulation” and “Item 1A. Risk Factors” in
the Company’s most recent Annual Report on Form 10-K and Quarterly
Reports on Form 10-Q and in its recent other filings with the U.S.
Securities and Exchange Commission. The Company undertakes no obligation
to revise or update any forward-looking statements unless required by
applicable law.

About Intersections:

Intersections Inc. (Nasdaq: INTX) provides innovative, information based
solutions that help consumers manage risks and make better informed life
decisions. Under its Identity Guard® brand and other brands,
the Company helps consumers monitor, manage and protect against the
risks associated with their identities and personal information.
Headquartered in Chantilly, Virginia, the Company was founded in 1996.
To learn more, visit www.intersections.com.

Explanatory Note:

The information in the following tables is presented giving effect to
the disposal of Voyce, with its historical financial results reflected
as discontinued operations. We made adjustments to our historical
financial results for certain costs and overhead allocations to either
discontinued or continuing operations for the year ended December 31,
2016 and nine months ended September 30, 2017; for additional
information, please see “Note 2 — Basis of Presentation and
Consolidation” in our most recent Form 10-Q.

   
INTERSECTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 
Three Months Ended Nine Months Ended
September 30, September 30,
2017   2016 2017   2016
REVENUE $ 39,248 43,027 $ 119,631 133,392
OPERATING EXPENSES:
Marketing 2,682 3,202 9,294 10,292
Commission 9,462 10,527 28,966 32,636
Cost of revenue 13,126 13,723 39,694 41,294
General and administrative 15,230 15,729 47,151 45,310
Loss on dispositions of Captira and Habits at Work 106
Depreciation 1,378 1,085 3,966 3,521
Amortization 29   82   123   431  
Total operating expenses 41,907   44,348   129,300   133,484  
LOSS FROM OPERATIONS (2,659 ) (1,321 ) (9,669 ) (92 )
Interest expense, net (701 ) (621 ) (1,895 ) (1,702 )
Loss on extinguishment of debt (1,525 )
Other (expense) income, net (3 ) (234 ) 133   (419 )
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (3,363 ) (2,176 ) (12,956 ) (2,213 )
Income tax (expense) benefit (6 ) 76   23   69  
LOSS FROM CONTINUING OPERATIONS (3,369 ) (2,100 ) (12,933 ) (2,144 )
Loss from discontinued operations, net of tax (1,030 ) (6,008 ) (2,449 ) (15,538 )
NET LOSS $ (4,399 ) $ (8,108 ) $ (15,382 ) $ (17,682 )
Basic and diluted loss per common share:
Loss from continuing operations $ (0.14 ) $ (0.09 ) $ (0.55 ) $ (0.09 )
Loss from discontinued operations (0.04 ) (0.26 ) (0.10 ) (0.67 )
Net loss per common share—basic and diluted $ (0.18 ) $ (0.35 ) $ (0.65 ) $ (0.76 )
Weighted average common shares outstanding—basic and diluted 23,953 23,378 23,818 23,178
   
INTERSECTIONS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
(unaudited)
 
September 30, December 31,
2017 2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,970 $ 10,797
Accounts receivable, net of allowance for doubtful accounts of $0
(2017) and $15 (2016)
6,496 7,964
Prepaid expenses and other current assets 3,861 3,711
Income tax receivable 2,548 3,314
Deferred subscription solicitation and commission costs 2,904 5,050
Current assets of discontinued operations and assets held for sale   575  
Total current assets 22,779 31,411
PROPERTY AND EQUIPMENT, net 10,430 10,611
GOODWILL 9,763 9,763
INTANGIBLE ASSETS, net 88 210
OTHER ASSETS 1,170   862  
TOTAL ASSETS $ 44,230   $ 52,857  
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,912 $ 2,000
Accrued expenses and other current liabilities 11,009 10,978
Accrued payroll and employee benefits 2,581 4,128
Commissions payable 360 316
Current portion of long-term debt, net 2,146
Capital leases, current portion 467 471
Deferred revenue 5,852 8,295
Current liabilities of discontinued operations and liabilities held
for sale
  858  
Total current liabilities 23,181 29,192
LONG-TERM DEBT, net 19,182 10,092
OBLIGATIONS UNDER CAPITAL LEASES, less current portion 484 865
OTHER LONG-TERM LIABILITIES 3,107 3,436
DEFERRED TAX LIABILITY, net 1,905   1,905  
TOTAL LIABILITIES 47,859   45,490  
COMMITMENTS AND CONTINGENCIES (see Notes 13 and 15 in most recent
Form 10-Q)
STOCKHOLDERS’ (DEFICIT) EQUITY:
Common stock at $0.01 par value, shares authorized 50,000; shares
issued 28,179 (2017) and 27,303 (2016); shares outstanding 24,122
(2017) and 23,733 (2016)
282 273
Additional paid-in capital 146,291 142,247
Warrants 2,140
Treasury stock, shares at cost; 4,057 (2017) and 3,570 (2016) (35,628 ) (33,822 )
Accumulated deficit (116,714 ) (101,331 )
TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY (3,629 ) 7,367  
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY $ 44,230   $ 52,857  
 
INTERSECTIONS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, unaudited)
 
Nine Months Ended September 30,
2017   2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (15,382 ) $ (17,682 )
Loss from discontinued operations, net of tax (2,449 ) (15,538 )
Loss from continuing operations (12,933 ) (2,144 )
Adjustments to reconcile net loss to cash flows used in operating
activities:
Depreciation and amortization 4,089 3,951
Amortization of debt issuance costs 184 658
Accretion of debt discount 66
Provision for doubtful accounts (15 ) (54 )
(Gain) loss on disposal of fixed assets 261
Share based compensation 4,564 4,658
Amortization of deferred subscription solicitation costs 8,482 9,981
Loss on disposition of Captira Analytical 130
Gain on disposition of Habits at Work (24 )
Loss on extinguishment of debt 1,525
Changes in assets and liabilities:
Accounts receivable 1,483 (1,092 )
Prepaid expenses, other current assets and other assets (412 ) 709
Income tax receivable, net 766 594
Deferred subscription solicitation and commission costs (6,336 ) (7,164 )
Accounts payable and accrued liabilities (677 ) (5,569 )
Commissions payable 29 (71 )
Deferred revenue (2,411 ) 618
Other long-term liabilities (329 ) (382 )
Cash flows (used in) provided by continuing operations (1,819 ) 4,954
Cash flows used in discontinued operations (2,313 ) (11,687 )
Net cash used in operating activities (4,132 ) (6,733 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received for the liquidating distribution of White Sky, Inc. 57
Net cash paid for the disposition of Captira Analytical (315 )
Decrease (increase) in restricted cash 115 (265 )
Cash paid for withholding tax on vesting of RSUs in exchange for
promissory note
(130 )
Proceeds from sale of property and equipment 394
Acquisition of property and equipment (3,964 ) (4,591 )
Cash flows used in continuing operations (4,294 ) (4,405 )
Cash flows provided by (used in) discontinued operations 4   (853 )
Net cash used in investing activities (4,290 ) (5,258 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 20,000 20,000
Repayments of debt (13,920 ) (2,895 )
Repurchase of common stock (1,510 )
Proceeds from issuance of warrants 1,500
Cash paid for debt and equity issuance costs (323 ) (1,856 )
Capital lease payments (411 ) (524 )
Withholding tax payment on vesting of restricted stock units (1,122 ) (408 )
Cash flows provided by financing activities 4,214   14,317  
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (4,208 ) 2,326
CASH AND CASH EQUIVALENTS — Beginning of period 10,857 11,471
Cash reclassified to assets held for sale at beginning of period 321    
CASH AND CASH EQUIVALENTS — End of period $ 6,970   $ 13,797  
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING
ACTIVITIES:
Equipment obtained under capital lease, including acquisition costs $ 40   $ 101  
Equipment additions accrued but not paid $ 209   $ 490  
Shares withheld in lieu of withholding taxes on vesting of
restricted stock awards
$ 117   $ 15  
 

INTERSECTIONS INC.
OTHER DATA
(in thousands)
(unaudited)

Revenue

The following tables provide comparative details of our revenue
information for the three-month periods ended September 30, 2017, June
31, 2017 and September 30, 2016, and for the nine-month periods ended
September 30, 2017 and 2016:

 
Quarter Ended
September 30,
2017
  June 30,
2017
  Change   September 30,
2016
  Change
Identity Guard® (1) $ 12,396 $ 12,482   (0.7 )% $ 12,369   0.2 %
Canadian business 3,405 3,220 5.7 % 3,157 7.9 %
U.S. financial institutions 20,774 21,365 (2.8 )% 23,533 (11.7 )%
Breach services & other (1)   1,270   1,311 (3.1 )%   1,012 25.5 %
Personal Information Services revenue 37,845 38,378 (1.4 )% 40,071 (5.6 )%
Other business units   1,403   1,557 (9.9 )%   2,956 (52.5 )%
Consolidated revenue $ 39,248 $ 39,935 (1.7 )% $ 43,027 (8.8 )%
 
 
Nine Months Ended September 30,
2017 2016   Change
Identity Guard® (1) $ 36,889 $ 38,474 (4.1 )%
Canadian business 9,684 9,404 3.0 %
U.S. financial institutions 64,042 73,399 (12.7 )%
Breach services & other (1)   4,217   2,841 48.4 %
Personal Information Services revenue 114,832 124,118 (7.5 )%
Other business units   4,799   9,274 (48.3 )%
Consolidated revenue $ 119,631 $ 133,392 (10.3 )%

______________________

(1)

 

We periodically refine the criteria used to calculate and report
our subscriber data. In the nine months ended September 30, 2017,
we determined that certain subscribers who receive our breach
response services should no longer be included in the presentation
of Identity Guard® subscribers or revenue due to the
nonrecurring nature of our breach response services. For
comparability, all periods presented have been recast to reflect
this change in subscribers and revenue.

 

Contacts

Intersections Inc.
Ron Barden, CFO
703-488-6810
IR@intersections.com

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